Company B acquires control of Company A, with the twist that A's employees become significant shareholders in B, effectively reversing the typical acquisition dynamic.
In the fast-paced world of artificial intelligence (AI), the competition is fierce, and companies are going to great lengths to secure top talent. One of the strategies that has gained traction is the practice of reverse acquihires.
A reverse acquihire, as the name suggests, is when a company purchases a small startup primarily for the skills and expertise of its employees. This strategy has been especially common in the tech industry, especially as companies fight to stay on top in the AI race.
Recently, Meta Platforms made a significant move in this direction, hiring a 24-year-old AI researcher and his team last summer via a reverse acquihire. The researcher, who had recently started his own company, was offered $125 million over four years, an offer he initially declined but accepted after it was doubled.
Meta's investment didn't stop there. This summer, the tech giant completed another reverse acquihire, investing $14.3 billion into Scale AI in exchange for a 49% stake in the startup. Alexandr Wang, the founder of Scale AI, will lead Meta's AI operations.
However, the impact of these reverse acquihires extends beyond the new hires. Employees left behind at a startup after a reverse acquihire find themselves without leaders, and their companies may become shells of their former selves. For instance, it appears that only four people still work for the startup that Meta acquired last summer, and it is unclear if anyone is still running the company after the new CEO left within a year of taking on the role.
Moreover, some industry professionals are concerned that the current trend of reverse acquihires could end up stifling innovation instead of creating it. The practice has even prompted the Federal Trade Commission to investigate the potential impact on market competition.
The Justice Department and the Federal Trade Commission are currently dealing with antitrust cases with major tech companies, and the impact of reverse acquihires on competition is a concern that is not likely to fade away soon. Meta Platforms, for instance, has put a freeze on hiring for its AI division, perhaps indicating a shift in strategy or a response to regulatory scrutiny.
In conclusion, reverse acquihires have become a common tactic in the tech industry, particularly in the AI sector. While they offer companies a way to secure top talent, they also raise concerns about competition and innovation. As the industry continues to evolve, it will be interesting to see how these trends develop.
